EPAct 179D Experts

"The least expensive kilowatt, is the one not used."

- Jacob Goldman

Energy Tax Act of 2005

The Energy Tax Incentives Act (“Energy Act”)1
contains some creative concepts despite the firestorm of criticism for some
controversial provisions in this massive piece of legislation. Some of this
creativity includes:

•Commercial building energy reduction saving
incentives are based on U. S. Department of Energy goals reflecting good
science.

•Architects and engineers are encouraged to
provide expert energy reduction design advice to municipal governments and
schools by allowing these architects and engineers tax benefits.

•A meaningful increase in the commercial
solar benefits is achieved by raising the solar credits from 10 percent to 30
percent per year with no annual cap.

Commercial Building Incentives

This new incentive can be as high as an extra $1.80 per square foot tax
deduction with a 50% energy reduction as compared to a 2001
standard2. As a result of the technology improvements described
below, this may not be as daunting a challenge as one might think. The
legislation seeks comprehensive investment, but if the investment isn’t
comprehensive enough to achieve the 50 percent reduction standard there are 60
cent per square foot incentives for achieving specific energy reductions in
major systems categories including lighting, HVAC, and the building envelope.
We have included the U.S. governments commercial building survey results for
2003 to provide some idea of the potential universe of buildings that could
benefit from these incentives on Table 1 below.

Architect and Engineer Incentives

Since municipalities aren’t taxpayers, the new law provides that the
primary designer (typically architects and engineers) may obtain the benefits
based on an allocation process to be provided in the regulations3.
Some commentators believe that heretofore some municipalities have been
foreclosed from accessing expert energy reduction advice since budget
constraints have forced them to simply engage in basic building. School
districts with deeper pockets use advanced technology school buildings with
solar devices and alternative energy systems as teaching laboratories.

Large Increase in Solar Benefits

An increase in the commercial Federal solar credit from 10 to 30
percent4 speaks for itself. Combine this benefit with state credit
benefits, low cost financing and potential energy rebates and solar investment
starts to get intriguing. Some rebate/reimbursement/financing benefits may
cause a reduction in some incentives so you might need to consult a
knowledgeable tax advisor.

Timing is always critical with the enactment of legislation aimed at
altering behavior and the ETIA was signed right before hurricanes Katrina and
Rita jolted the nation into confronting the reality of our nations energy
challenge. ETIA was intended to help cope with higher energy prices that were
already on the rise from a stronger global economy particularly from large
emerging economies like China and India. At the time of enactment, the U.S.
still seemed to be committed to conspicuous consumption in a very visible
Hummer-McMansion oriented society.

However, beneath the high energy consumption level of society a lot of
environmentally concerned people throughout the world have been making major
strides in developing solutions for high energy consumption.

Some of the more apparent and interesting developments include
the following:

•Major improvements in solar panel technology and solar panel
manufacturing capacity. Improvement in solar panel technology is
enabling thinner and less expensive panels. New roofing, shingles and windows
are pre-embedded with solar membranes and solar modules. The potential market
is attracting both major companies such as General Electric, Shell Solar, BP,
Sharp and Sanyo along with fast growing smaller cap companies such as Evergreen
Solar, PowerLight, SunPower and Stirling Energy Systems.

•Widespread acceptance of Leadership in Energy and
Environmental Design (LEED) building standards. LEEDs stands for
Leadership in Energy and Environmental Design. LEEDS has upward of 60 specific
rating points with accomplishment levels whereby a building owner can be
awarded in ascending order Certified, Silver, Gold or Platinum status. Many
leading companies such as Johnson & Johnson, Federal Express, Citigroup,
New York Times and Bank of America have built large buildings achieving LEED
status. In October New York Cities Mayor Bloomberg announced that prospectively
all city municipal buildings must be built to at least a LEED silver status.

•The public’s willingness to pay more for hybrid
automobiles. America’s traditional auto manufacturers seemed to
be astonished to learn that environmentally concerned U.S. consumer auto
purchasers were willing to pay a premium for hybrid cars. The American auto
manufacturers operated with a belief set that the only vehicles they could
manufacture with an acceptable profit margin were SUV’s. The Energy Tax
Incentives Act of 2005 contains a range of incentives for hybrid vehicles based
on performance ratings.

•Major improvements in the energy consumption level of
appliances and power devices. Recent appliance purchasers are all
familiar with energy star appliance ratings and energy power device reduction
technology is the current focus of computer and device manufacturers. The
Energy Tax Incentives Act of 2005 adds a new credit for the manufacturers of
energy efficient appliances limited to dishwashers, clothes washers and
refrigerators.

•Major improvements in lighting fixtures and lighting control
devices. Here the new or more widely accepted technologies include
compact fluorescents where rapidly declining price points are speeding
introduction, Light Emitting Diodes more commonly called LEDS and a variety of
motion and heat sensors that greatly reduce electricity when rooms are
unoccupied.

•The existence of huge big box retail distribution
organizations searching for growth. BP and Home Depot have announced a
solar product joint venture supported by professional solar installers.
Distribution networks of this scale have the potential to rapidly increase
market penetration.

The majority of the new energy tax incentives provided in ETIA sunset as of
December 31st 2007 meaning this is essentially a two year experiment.
Hopefully, American taxpayers take good advantage of these new provisions and
it becomes apparent we need even more creative thinking.